Industry Location and Variety Growth: Empirical Examination of Regional Exports
Recognizing goods produced in different sub-regions within a country as distinct differentiated products, we offer new evidence of variety expansion in nation’s export. We decompose Japanese national exports into prefecture sub-regions and construct extensive margins and intensive margins of exports for sub-regions for the period between 1988 and 2005. In this study we examine exports of over 41 sub-regions of Japan in over 7,000 product categories. First, we examine to what extent the empirical findings of the extensive margin in Hummels and Klenow (2005) for cross-country samples applies to sub-regions within a country. We find that extensive margin accounts for over 60 percent of the greater exports of larger sub-regions. Second, we examine heterogeneous growth of exports variety among sub-regions for the sample periods. We find export variety of most prefectures expands in our sample periods, but decreasing in variety can also be found for prefectures positioned in either high variety or lowest variety group in 1988. We conclude that export expansion in terms of new exports from sub-regions within a country can account significant portion of product variety and export production is being dispersed among regions rather than going through the process of agglomeration.
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